Endeavour Silver - Earnings Call - Q2 2025

Transcript

Speaker 7

For standing by, this is the conference operator. Welcome to the Endeavour Silver Corp., second quarter 2025 financial results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Allison Pettit, Vice President, Investor Relations. Please go ahead.

Speaker 4

Thank you, operator, and good morning, everyone. Before we get started, I ask that you view our MD&A precautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A and financial statements are available on our website at edrsilver.com. On today's call, we have Endeavour Silver CEO, Dan Dickson, our CFO, Elizabeth Senez, and Endeavour COO, Donald Gray. Following Dan's formal remarks, we will open the call for questions. Now, over to Dan.

Speaker 0

Thank you, Allison, and welcome, everyone. Q2 marks an eventful quarter for Endeavour Silver Corp. The commissioning of Terronera, the acquisition of Kolpa and its ongoing integration, this is transforming our company. As we move forward, our focus remains firmly on achieving commercial production at Terronera. In Q2, Endeavour produced one and a half million ounces of silver and 7,800 ounces of gold, totaling approximately two and a half million silver equivalent ounces, including some of our base metals now. This represents a 13% increase compared to Q2 of 2024, with the inclusion of our new mine in Peru, Kolpa. We report a revenue of $85 million, an increase of 46% compared to prior year, benefiting from the higher precious metal prices and increased production.

Mine operating cash flow before working capital changes lowers by 21%, while operating costs remain below guidance with cash costs coming in at $15.35 per ounce of payable silver and all-in sustaining costs for $25.26 per ounce, net of byproduct credits. Direct operating costs per ton are relatively flat compared to the same period of last year. Mine operating earnings decreased to $7.7 million from $10.2 million in Q2 of 2024, impacted by a $6 million loss at Terronera during the commissioning phase and increased depreciation. The company reported a net loss of $20 million for the period, primarily due to Terronera's operating losses during commissioning. Increased G&A relates to the acquisition of Kolpa, a $10 million non-cash loss on derivatives, with increased depreciation and tax expenses during the quarter. As of June 30th, the company's cash position was $52 million. However, working capital was negative.

If we excluded the non-cash derivatives, there is a $14 million surplus. This is by design with Terronera nearing commercial production. On August 5th, the company gave an update on throughput and recovery as the mine made its way towards commercial production. With throughputs averaging between 1,900 and 2,000 tons per day and silver and gold recoveries averaging 71% and 67% during the second half of July, the company will be introducing higher-grade material to help enhance recoveries and sustain the design throughput of 2,000 tons per day. With ramp-up advancing, Terronera continues to move closer to commercial production, adding a long-term asset to our portfolio while reinforcing the company's position as a leading mid-tier silver producer. Since the Minera Kolpa transaction closed on May 1, integration of the new asset and teams has been going well.

The company has continued to work on validating and updating the historical resources prepared by the previous owners and, as such, is unable to provide production guidance for Kolpa until a current 43-101 resource exists. Our management expects a similar production profile to Kolpa's 2024 annual production of 5 million silver equivalent ounces, Kolpa's May and June production annualized. Our production output tracks to align with Kolpa's historical performance, which would be annualized at 4.8 million ounces of silver equivalent production. Kolpa has continued to assess and is planning towards a 2,500-ton per day operation, and we've included additional capital in our outlook to achieve these production levels next year. When combined with the launch of Terronera and Bolañitos and with Terronera coming online in the near term, Endeavour Silver is on track to achieve an annualized production profile of 20 million silver equivalent ounces and expects that in 2026.

Lastly, before we open this call to questions, we continue to advance the Pitarrilla project. Exploration work is focused on upgrading inferred resources to indicated, and engineers are working on various studies for tailings dam permits and an economic study. Again, it's been a very eventful and busy quarter, and with that, I'm happy to open this up to questions. Operator, please proceed to our Q&A session.

Speaker 7

Certainly. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

Speaker 3

Hey there. Thanks for taking my questions and congratulations to Allison for becoming part of the management team. Well done in commercial production.

Speaker 0

Oh, it's glad to hear that.

Speaker 3

Commercial production at Terronera is obviously nearing. In your experience and just knowing exactly what goes on at the site on a daily basis, can you maybe just give a bit of a color on what you're seeing there right now? I mean, in your release, you discussed 71% silver recoveries and 67% gold recoveries, but these figures are from two weeks ago. The same thing with the 1,900 to 2,000-ton per day throughput rate. Any idea what we're seeing this week more recently? More importantly, is the ramp-up going faster than what you had previously thought? Because this is sure quicker than what we had in our model.

Speaker 0

Yeah, thanks for the question, Heiko. I'll be able to answer that summary. We'd always said we thought we could get through commissioning and ramp-up in a relatively short period of time. We were targeting kind of a commercial production, July 31, and we're very close to that. We really want to see our recoveries get within 90% of the supergoal lifetime mine recoveries. If I recall correctly, over lifetime mines for Terronera, in our optimized plan, it was about 88% or 89% recoveries of silver and 76% to 78% recoveries on gold. We've reached that from a gold standpoint. Silver grades have been slightly lower, just on some of the lower grade ore that we're putting through. There have been some design, not necessarily modifications, just getting the SAG mill and the ball mill, the grind size, as designed.

With the grind size coming down, we'll see increased recoveries on silver. As far as the last couple of weeks, on site, I haven't particularly been there, so there's nothing that I'm seeing. On a daily reporting standpoint, we did bring back our tons a little bit just to focus on recoveries and make sure we get that grind size that we need again to align to the recoveries that we expect in the feasibility study and the work we've subsequently done. I don't know if I've got Donald Gray sitting here with me. I don't know if you've had anything to add to that, Don, with regards to what's happening on site and things that we're seeing.

Speaker 5

Yeah, no, I think that, I think like Dan said, the focus right now is on getting our, especially our grind size to the design criteria that we had from the met testing. The ore is very grind size dependent versus dependent on other things like reagents and things like that. If we get the grind size zeroed in, like on the SAG mill, we'll see good recoveries on the flash cell, for example. That's what they're focused on at site, and they're really zeroing in on that now.

Speaker 3

Okay. I know this was a lot, so I'll keep the other one very brief. Just conceptually, with Minera Kolpa, the integration, I assume, has taken a decent amount of everybody's time on this call. Is that making you essentially unable to go after another target, or are you still looking for additional things, you know, meaningful acquisitions that are out there?

Speaker 0

Yeah. Yeah, no problem, Heiko. It's a good question. I mean, there's only so much capacity that we can pick up as a management team. Definitely, when we announce the acquisition of Kolpa on May 1, and obviously, April 1 and close it on May 1, it takes up some of our executive time. The one thing that is great about Kolpa is its management team. It reported into two groups. One was a closed-end fund. The other was a property management or real estate company that was actually listed in Lima. They do have the administrative capabilities to kind of report into us. You didn't have to add a lot of bodies. Obviously, I've probably been working our team a little bit harder than what they want and what I want.

There are certain times in a company's history that those opportunities present themselves, and we took a kick at it. Are we done? We're not done. We need a bit of a breather. We really need Terronera to be in commercial production and cash flows to, or for it to generate positive free cash flow, improve our balance sheet, forward, and ultimately pay down debt, and then focus on building our balance sheets to be able to take on something like Pitarrilla. Gerald, our VP of Corporate Development, continues to review things. We have a lot of various assets or various opportunities to come into our desk in Peru now just because of that acquisition. We need a bit of a breather.

We need to get where we need to be and then obviously continue to see something that what we'd want to be is accretive and make sense for Endeavour Silver and to stay silver-focused and continue to grow the company.

Speaker 3

Perfect. I'll get back in queue and stop hogging the queue here. Thanks a lot, and congratulations again.

Speaker 0

Thanks, Heiko.

Speaker 7

Our next question comes from Wayne Lam with TD Securities. Please go ahead.

Speaker 6

Yeah, thanks, morning, guys. Thanks for taking my question. Maybe just a follow-up at Terronera. Obviously, a lot of focus around the impending commercial production management. I guess, you know, with the tonnage being essentially over 90% in the month of July of design capacity, just to clarify, you guys are just kind of trying to optimize the recoveries to get closer to the design, and that's the only, I guess, impediment to a commercial production announcement, or is there anything else? Just curious.

Speaker 0

No, that's it, Wayne. I mean, we don't want to pigeonhole ourselves throughout. From a concrete spec standpoint, we want to hit that, but we're generally there. It really comes down to hitting recoveries, getting the grind size down to design and needed for recoveries. We expect that relatively short. We're moving in a good direction, and hopefully, we're close.

Speaker 6

Okay, yeah. Seems like you guys are on the verge of an announcement, and given the expectation that the recoveries would also improve alongside the grade as well. Maybe turning to Kolpa, the operating cost per ton this quarter seems to be a little bit higher relative to those under the prior operator the past few years. Just wanted to ask what's driving that, and should we anticipate that to come down as you guys sink your teeth a little bit more into the operations of the mine?

Speaker 0

Yeah, obviously, there's integration costs that are flowing through in May and June. Someone comes in, obviously, it hits them a flight. Everybody's trying to, whether it's IT systems, some of that gets expensed through that development, changing their accounting policies, a little bit of understanding everything. Obviously, our expectations to be more aligned to what they did in 2024. There's obviously inflationary pressures when a new company comes in. They have additional asks. We want to be good custodians of that mine and kind of support them and improve. There's some things we want to improve, but honestly, they did everything really well. If we stayed at 2,000 tons for the next six months, I'd expect costs to come down and more aligned to 2024. We are looking at going to 2,500 tons. We have put in kind of growth capital in our outlook.

We haven't completely finalized when that's going to occur if some permits are required for that. We do expect kind of an increase. Hopefully, next year, sometime in 2026, we're at 2,500. Maybe it starts earlier, but we don't have enough information to kind of define that timeline exactly yet.

Speaker 6

Okay, got it. I guess that would be my last question. Just on that comment on the expansion, which you guys have kind of telegraphed as a potential optimization at the plant on the acquisition announcement. In terms of getting to the 2,500 tons today, is that $12.5 million the incremental capital that you would need to get there? Then on the permitting side, what exactly would be needed for that incremental expansion?

Speaker 0

Yeah, so the $12.5 million is the incremental cost required to get there. In our sustaining capital, we've included some capital in the sustaining that would, if we didn't do an expansion, it still would contribute to 2,000 tons per day, i.e., mine development or partly with tailings expansion. There are parts of it, i.e., installing pull casing cells and the actual mill, that is that $12.5 million. They have the permit to expand. They need the permit to operate. I'll let Don clarify.

Speaker 5

Yeah, that's correct. It's in the process. Of course, you know, in different countries, it's with different agencies approved, like the environmental permit and then approved the operating permit. That's kind of where we're at on some of the expansion items.

Speaker 6

Okay, perfect. Yeah, seems like a well-timed transaction and certainly looking forward to the optimizations ahead. Thank you very much, guys.

Speaker 0

Thanks for the questions, Wayne.

Speaker 7

Our next question comes from Nick Giles with B. Riley Securities. Please go ahead.

Speaker 1

Hi, team. This is Sandhya Ayer on behalf of Nick Giles from B. Riley Securities. If I may, I just wanted to touch on the financials. How are you thinking about hedging on a go-forward basis given that the equity appears to be impacted by the volatility in financial statements?

Speaker 0

Yeah, I'm happy to answer that. Right now, we do have some hedge contracts on our balance sheet. We have 68,000 ounces of gold that we sold effectively at $2,325 in March of 2024. That's our derivative liability and ultimately our derivative loss. Our preference is not to hedge precious metals. Obviously, we're a silver company. We believe people that want to buy the Endeavour name and play, first and foremost, their hypothesis is silver is going up. If you think silver is going down, I don't think you should buy a silver company. We want to give that exposure to our shareholders. We do have some collars put in place that we did this quarter. We collared about 990,000 ounces of silver between $31 and $42. That's all designed around our lending facility, similar to our 68,000 ounces of gold.

As we start getting into cash flow at Terronera and start paying down that debt, I wouldn't expect us to really do any hedge programs around silver and ultimately precious metals.

Speaker 1

Thank you. That's helpful. Maybe one more on the working capital side. How should we think about working capital over the second half of 2025? Should we expect a release soon this year, or could it be more towards achieving the throughput targets?

Speaker 0

Yeah, I mean, it's all tied to commercial production at Terronera and the cash flows that Terronera is going to generate. Obviously, as I said in my spiel before the questions, it's by design that our working capital is going to get this low. I mean, we have $52 million in cash, but we do have a significant payable. That's all part of building the mine and getting through commissioning and getting to positive cash flow. Our expectation is Terronera gets to positive cash flow and that working capital improves over the next two quarters, three quarters, and all beyond that. We start lowering our debt that we're carrying. Ultimately, looking at next transaction and next build. Again, expect working capital to improve in the second half of the year as Terronera goes into production.

Speaker 1

Thank you. I do not know that.

Speaker 0

Thanks for the question, Sandhya.

Speaker 1

Yeah.

Speaker 7

Thank you. Once again, if you have a question, please press star, then one. Our next question comes from Philip Ker with Ventum Financial Corp. Please go ahead.

Speaker 0

Thanks, operator. Just a couple of questions on my end. Dan, at Bolañitos, the mill underperformed on the back of some component replacements. Has the throughput normalized now? Yeah, that's a great question. I'm glad you brought that up, though. Actually, you're right. Our throughput out of the mill in Q2 was lower than what we've seen over the last four or five years. Replaced some parts in the crusher, replaced the motor on one of the mills. It cost us about 10 to 12 days. We are back up to the 1,200 tons per day. Ultimately, our costs at Bolañitos are higher because of that, just with the lower throughput. Same amount of costs over less tons. Yeah, obviously, Bolañitos isn't a big part, going forward, but it's still important.

They're a phenomenal little mine that's been scrappy and continues to find resource and extend mine life and good cash costs. We expect Q3 and Q4 to be back online. If you look at our guidance between Guanaceví and Bolañitos in January and where we're at, we're right in that range with Bolañitos being slightly behind plan. Again, we expect that to catch up here in Q3 and Q4. Perfect. That's great. Over at Kolpa, now that you've taken the keys and gotten under the hood a little bit more, assuming that maybe you've dove into some of the exploration potential there, have you had a little bit more boots on the ground and evaluated some of the targets and opportunities there? If you could highlight some of those for us, that'd be great. Yeah, that's probably another great question.

Obviously, when we bought Kolpa, we explained to kind of our audience that we really liked the exploration potential. Luis Castro Valdez, our Senior Vice President of Exploration, has been down there a couple of times. We are kind of aligning, and where we thought we could bring a lot of value was exploration and coming up with a more systematic approach, a lot more surface work. They did a lot of what we've seen in Latin America following the vein. It hinges out in doing cross cuts underground. Luis is kind of trying to get them to go back to surface and do some geochem, geophysics, and identify that way with surface work and then be more systematic about how we're drilling and what we're doing.

Assays have to go as a third party, so we can exclude that into our current resource they've been putting into their assay lab. We are kind of reorganizing the exploration group. We do expect to get some exploration results out relatively soon. There's a vein called Port Orosa West that we've touched on on acquisition. We've seen good grades and good widths. We want to get a group of holes together so it's actually meaningful. We expect that to be out in the next couple of weeks. Things have been lining exactly as our expectation. When I say next couple of weeks, I mean sometime by mid-September. I'm getting eyes from our staff. Everything's lining up to our expectation. Work needs to continue to be done, but we're happy with the acquisition as it is now. Very good.

Fair to say that as you prioritize and evaluate the various targets, maybe a little bit more aggressive efforts will be laid out in 2026? Yeah. Under the agreement, there's a contingent payment of $10 million based on the resource that we publish. If we publish 100 to 120 million, we pay a sliding scale payment up to $10 million. We have to spend $12 million on exploration over 24 months over that two-year period. Otherwise, if we don't spend that $12 million, that goes towards the $10 million payment. We expect a program of $12 million over the next 24 months. That's a great refresh. Appreciate that, Dan. No problem. That's for me, operator. Thank you. And thanks for the question, Phil.

Speaker 7

Our next question comes from Alexander Terentiew with National Bank Financial. Please go ahead.

Speaker 6

Yeah, hey guys, thanks for taking my call. I apologize if I already answered this question. I'm traveling at the moment, so I just got on a bit late. At Kolpa, on the expansion, you said the development capital, you're spending about $13 million this year, or that's your guidance. Is that, and does that mean there is going to be more for an expansion to get to 2,500 next year? I'm just trying to understand kind of timing of getting there and what would be required to drop or dip those levels.

Speaker 0

Yeah, so what we've included in our disclosure, ultimately, it's we have $18 million in sustaining capital and $13 million in expansion. That $18 million, as I say, includes expansionary stuff, but if we didn't expand, it's part of sustaining, and that has value going forward. The $13 million is effectively size and scale of the tailings, filter press, and installation of the mill and for adjacent cells. We talked about that a little bit earlier. We do expect that to get to 2,500 tons per day. As I say, it's just a question on timing, and Don is hoping to, there are some offering permits that are needed that are expected relatively soon, which impacts that timing. We could get that all done and get to 2,500 with everything aligned perfectly this year. Is there any other capital, Don, you think that we would need next year?

Speaker 5

I mean, we're going through the budgeting right now, so we'll be evaluating that. The major, of course, is for this expansion capital and getting that completed on time, so that's our big push right now.

Speaker 0

Guys, that's good. I was kind of assuming a bit more spending next year, but it seems like you brought forward some of that this year instead, so that's fine. One of.

Speaker 5

You're correct, actually, on one of those things that maybe we spoke in the past. The tailings facility and the expansion, that was not originally in our forecast on May 1. Because of rainy season and timing, we just bring some of that forward to try to get that done before rainy season just for efficiencies.

Speaker 0

All right, perfect. That's it from me, operator. Thank you.

Speaker 5

Thanks for the questions, Alexander.

Speaker 7

Thank you. To ask a question, you may press star, then one. Our next question comes from Craig Stanley with Raymond James. Please go ahead.

Speaker 2

Thank you, Aaron. Hi all. A couple of quick questions for me. Terronera, how are the filter presses working?

Speaker 0

Thanks for the question. They're working really, really well. It took about a month to get the first filter press going. As you know, for those that don't know, we have about 4,000 tons of capacity on our filter presses at the back end of the plant. We want to make sure we add redundancy for startup and obviously into operations and eventually if we ever needed to increase production. We have huge kind of twin filter presses that do 2,000 tons per day each as well as filter press one. Filter press two, nothing special with that. With filter press one, getting it up in commissioning, we were taking sensors and parts from filter press two, and it took about a month to get it commissioned and operating as we expected.

Metso provided the parts and sensors that we needed for filter press two to get that going, and that took about only a week to get up in commissioning and operating. We've switched between one and two, and as you saw, like I say, we saw our numbers for July, and the filter presses have gone really well. We bought a bunch of cloths early on. We've been lucky in the sense that the first cloth we put on the filter press has gone well. The concentrate filter, we started up, we got our output pretty good. We're still working on some kinks there and starting to change some cloths with regards to the specs of the concentrate. I think, and Don will touch on this, ultimately, I think it went a lot smoother than what we expected, which is a pleasant surprise.

Speaker 5

I think anyone that's been involved historically with filter press commissioning and operation knows it sometimes is the bottleneck for your production. Once it's got up and running, it just wasn't. Neither the tailing nor the concentrate filters. Now the concentrate filter is running really well. We're getting good moisture content, getting good moisture content on the tailing filter. It went really well. We're really pleased with the performance there.

Speaker 2

Thanks. Tessa, when would you think you'd put out a press release with the results of an updated technical report?

Speaker 0

Yeah.

Speaker 2

The initial 43-101, I guess, under you guys.

Speaker 0

Yeah, we did on acquisition, we actually put out a 43-101. It just had no resources and referred to the historical resources. We've engaged SCS to kind of go through that, and we have the twin holes. There's work to be done to validate all the work that they've historically done. Obviously, we want to make sure that number aligns a little bit to what we expected with their historical resource. That's going to take some time. It's probably mid-2026. We would try to really push for the beginning of next year, but it looks difficult to get it done for that soon. We'll see. Like I say, we know what we're doing. We have an offering plan, but just to get clarity out there in the marketplace, we want to make sure we get that current resource out there, which will take some time.

Speaker 2

Is an updated study for Pitarrilla still coming out here in the early new year?

Speaker 0

Early new year is probably optimistic at this point, just because Charinera has split a little bit on us, and we want to move some bodies from Charinera into the Pit area. We do have various engineering groups at Partray, SDS working on studies. The biggest thing that we've been focusing on is the tailings dam and the tailings dam site. We can get all that work done, part of that study then ultimately into the government because that is the one key permit that's needed. Again, for everybody on the call, we have AMIA, we have our environmental impact assessment there. We have a permit to build the plant. We have permits for mining underground. We've got a two-kilometer adit already into Pit area. The biggest bottleneck from a permitting standpoint will be the tailings dam. We own over 5,000 hectares there.

It's in the great jurisdiction, great state, of Durango in Mexico. It will take a little bit of work, but we feel like we'll be able to get that permitted and then hopefully move in and continue to advance Pit area.

Speaker 2

Awesome. Thanks for answering my questions.

Speaker 0

Thanks for the questions, Craig. Hope it's all well.

Speaker 7

Thank you. Ladies and gentlemen, if you have a question, please press star, then one. We have no further questions at this time. I would like to turn the conference back over to Dan Dickson for any closing remarks.

Speaker 0

Thanks, operator. Thanks to all our shareholders. It seems to be we have a lot going on, and we're getting very close on Terronera. We're completely realized as a management team that the focus was on Terronera and delivering commercial production, ultimately cash flows, and ultimately getting Terronera to what we expect it can do and beyond that, growth with Pitarrilla. With Kolpa coming in and Guanaceví and Bolañitos continue to perform, we were on a track to improve our balance sheet significantly here over the next six months and then hopefully continue to grow after that. Have a good day and talk to everybody soon.

Speaker 7

This brings to an end today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.